Borrowing is often necessary to finance major purchases. When planning to take on a major financial commitment such as a long-term loan, it is advisable to request a quote from several lenders and select the most appropriate for one’s own circumstances.
When evaluating the suitability of a loan and seeking quotes, the potential borrower should consider the following issues: method of repayment, interest rate, interest rate margin and various service fees and commissions. Typical expenses and fees are commission on credit, a management fee and a service fee, all of which add to the total cost of a loan.
One’s own capacity to service the intended loan should be examined carefully before taking out a loan. After all loan expenses have been taken into account, money should remain aside for normal living and even for savings to meet unexpected expenses. If the loan is so large that all flexibility to meet the monthly repayment plan has been exhausted, there is no room for manoeuvre in the event of a weakening in the borrower’s financial situation that would require readjustments to the loan repayment plan. When planning to take out a loan it is important to bear in mind that the loan expenses may increase if interest rates rise. Furthermore, fees and commissions payable in connection with taking out a loan also increase the overall cost of the loan.
Banks require applicants to supply them with evidence of their ability to service the loan they intend to take out. They are asked to provide details of their income, expenses, assets and other loans. Assessing their own financial standing also benefits the applicants, as it helps them to evaluate their own ability to service the loan. The applicant is responsible for the accuracy of the information and how realistic it is. Provision of misleading information can constitute grounds for revoking the loan.
The lender must inform the applicant of the terms and conditions of the loan agreement, but applicants are responsible for acquainting themselves with the contents and conditions of the loan agreement, prior to signing it.
If the borrower’s ability to service a loan is compromised for any reason, they should contact the lender as soon as possible to agree any changes to the loan repayment plan, such as postponement of repayment instalments or the drafting of an entirely new repayment plan. For example, credit ratings registration arising from payment delays significantly reduce the ability to the negotiate payment plan.